Hashing Out Bitcoin Ownership

Dave Emory’s entire life­time of work is avail­able on a flash drive that can be obtained here.[1] (The flash drive includes the anti-fascist books avail­able on this site.)

[2]COMMENT: In our ongoing critique of Bitcoin, we’ve noted that it appears to be an “op,” executed by Siemens spinoff Lantiq, which was capitalized by Golden Gate Capital (staffed by alumni of Bain Capital, Mitt Romney’s firm.)

Newer readers/listeners should note that Siemens functions as something of a quartermaster for BND–German’s foreign intelligence service, evolved from the Gehlen “Org.”

In a reprise of a previous and apparent ongoing vulnerability of Bitcoin, the possibility of an “Armageddon” in the Bitcoin world produced by concentration of ownership looms.

Once again, the GHash.io mining pool is at the center of the plot. Because it had garnered control of 51% of the Bitcoin market, it could “double-sell” coins and compromise the integrity of the entire network.

It is particularly interesting to note that just exactly who owns GHash.io is a mystery, as is the true identity of “Satoshi Nakamoto,”–the inventor of Bitcoin. Again, we feel we nailed it in FTR# 760[3].

” . . . . Mak­ing mat­ters worse, no one knows who is behind GHash[7] or CEX. The own­ers of the Netherlands-based com­pany (which lists a Lon­don mail­ing address) are noto­ri­ously secre­tive, mean­ing that the bit­coin com­mu­nity – which at this point rep­re­sents sev­eral bil­lion dol­lars in wealth and untold future value – are left trust­ing a shad­owy entity not to behave badly with its new­found power. . . .”

Hmmmmm! A “notoriously secretive,” “Netherlands-based company”–doesn’t sound good. We wonder if this is another property of the Bormann capital network[8]? Certainly, the general profile fits their front organizations[9].

Front and center in the Bitcoin cheering section are supporters of the Austrian School of economics–Ludwig von Mises, Friedrich von Hayek et al.

Adamantly opposed to “guvment in’ference” in markets, they advocate unregulated finance. Bitcoin illustrates in brutally dramatic fashion why regulation is very much needed.

Here we go again. For the umteenth time in recent mem­ory, the sanc­tity of the bit­coin net­work is fac­ing an exis­ten­tial threat from a large and overly secre­tive orga­ni­za­tion. It’s not an exchange or wal­let ser­vice this time around that has the atten­tion of crypto-currency watch­ers, but rather a large min­ing pool, specif­i­cally GHash.io[11], the self-described world’s “#1 Crypto & Bit­coin Min­ing Pool.”

So why is the bit­coin world up in arms over GHash? On sev­eral occa­sions last week, one last­ing a full 12 hours, the group, which is owned by cloud-mining ser­vice CEX.io, con­trolled more than 50 per­cent of the global com­pu­ta­tional power directed at min­ing bitcoin.

With such con­trol, GHash (or any group that finds itself in a sim­i­lar posi­tion) could manip­u­late the integrity of the bit­coin net­work by poten­tially double-spending coins, block­ing or revers­ing trans­ac­tions by com­pet­ing min­ers, extort­ing increased trans­ac­tion pro­cess­ing fees from the net­work, or wag­ing a dis­trib­uted denial of ser­vice (DDoS) attack against the entire bit­coin net­work – col­lec­tively, a so-called “51 per­cent attack.” In other words, it’s a major threat to bitcoin’s foun­da­tional dis­trib­uted, and there­fore trust­less, nature.

Cor­nell researchers Ittay Eyal and Emin Gün Sirer were the first to rec­og­nize the 51 per­cent event, call­ing it “armaged­don[12]” in a Fri­day blog post, and describ­ing GHash as a “de facto monop­oly.”The pair, who have long been thought lead­ers on the con­cepts of 51 per­cent attacks and “self­ish min­ing,[13]” write:

GHash is in a posi­tion to exer­cise com­plete con­trol over which trans­ac­tions appear on the blockchain and which min­ers reap min­ing rewards. They could keep 100% of the min­ing prof­its to them­selves if they so chose. Bit­coin is cur­rently an expen­sive dis­trib­uted data­base under the con­trol of a sin­gle entity, albeit one that requires con­stantly burn­ing energy to main­tain — worst of all worlds.

It’s a his­tor­i­cal first for any entity to cross the 50 per­cent thresh­old, although GHash has been close before, approach­ing 45 per­cent in Jan­u­ary[14]of this year. At the time, GHash issued a press release[15], pub­licly com­mit­ting to never reach­ing the feared 51 per­cent thresh­old (really, any­thing greater than 50 per­cent). So much for that promise.

To be clear, GHash doesn’t own 50 per­cent of the global min­ing power, it sim­ply “con­trols” it. This dis­tinc­tion is impor­tant, but does not nec­es­sar­ily elim­i­nate the threat the group poses. GHash has in the past claimed to own only half the hard­ware pro­vid­ing the hash­ing power that it con­trols, with the rest con­tributed by third-party min­ers that allo­cate min­ing power to its pool. Nonethe­less, the bit­coin net­work has rea­son to be fear­ful of this con­cen­tra­tion of power.

Mak­ing mat­ters worse, no one knows who is behind GHash[7] or CEX. The own­ers of the Netherlands-based com­pany (which lists a Lon­don mail­ing address) are noto­ri­ously secre­tive, mean­ing that the bit­coin com­mu­nity – which at this point rep­re­sents sev­eral bil­lion dol­lars in wealth and untold future value – are left trust­ing a shad­owy entity not to behave badly with its new­found power.

To be clear, GHash has not abused its power yet. But if history’s taught us any­thing it’s that power cor­rupts. Mak­ing mat­ters worse, the com­pany was pre­vi­ously accused of using its enor­mous size advan­tage to bully a gam­bling site[16] via double-spending attacks.

Eyal and Sirer write:

No one knows the ulti­mate aims of GHash. The peo­ple who join the GHash pool do so because GHash has zero fees — these peo­ple are essen­tially opti­miz­ing for short term prof­its over the long term well-being of the cur­rency. All of these are pre­cisely the points we cau­tioned about. So this is when we get to say “We told you so.”

The pair go on to advo­cate a “hard fork” in the code­base under­ly­ing bit­coin, with the goal of accom­plish­ing three core fixes: dis­in­cen­tiviz­ing min­ing pools, com­bat­ting self­ish min­ing, and mak­ing min­ing activ­ity more trans­par­ent. They con­clude, sarcastically:

Or we can carry on as if noth­ing of impor­tance hap­pened. GHash will be on their best behav­ior for the next few weeks, and Bit­coin will limp along. What will bring the actual demise of Bit­coin is the sub­ject of a future blog post, but this is by no means the end. Peo­ple can still use Bit­coin to buy drugs, trin­kets from Overstock.com, and maybe even grilled cheese from a food truck. There is an after­world. And for every­thing else, there is dirty fiat and Mastercard.

As Eyal and Sirer point out, the poten­tial of 51 per­cent attacks has been known for some time. As a whole, the bit­coin com­mu­nity lead­ers have been quick to write off the risks of such a sce­nario, offer­ing two com­mon jus­ti­fi­ca­tions. First, we’re told that the invest­ment required to cre­ate a min­ing pool would dis­in­cen­tivize a pool’s par­tic­i­pants from ever con­duct­ing such an attack. But, as the Cor­nel report explains:

…[this] assumes a sta­tic world. Instead, the min­ing rigs have a fairly short use­ful life­time. If a miner knows that they will be over­taken by the next gen­er­a­tion of hard­ware about to be unleashed by a com­pet­ing min­ing pool, it will have a def­i­nite time hori­zon for extract­ing every last bit of value, and that plan may not have room in it for a voy­age to the moon.

Sec­ondly, naysay­ers are quick to argue that the min­ing com­mu­nity and bitcoin’s core devel­op­ers will eas­ily rec­og­nize such an attack and will there­fore pre­vent the bad actors from harm­ing the broader bit­coin net­work. At best, this seems like an ide­al­is­tic view of likely events. Even if such an attack were rec­og­nized and ulti­mately inter­rupted, the trust-eroding effects – both within the com­mu­nity, but more so within main­stream con­sumers and media – would be stag­ger­ing. Assum­ing that no harm will come of even a brief 51 per­cent attack couldn’t be fur­ther from the truth.

…

A GHash spokesper­son told CryptoCoinNews:

…we would never do any­thing to harm the Bit­coin econ­omy; we believe in it. We have invested all our effort, time and money into the devel­op­ment of the Bit­coin econ­omy. We agree that min­ing should be decen­tral­ized, but you can­not blame GHash.IO for being the #1 min­ing pool.

Bit­coin was cre­ated specif­i­cally to avoid the need to trust any cen­tral­ized author­ity, be it a fed­eral gov­ern­ment, the Fed­eral Reserve, the World Bank, or oth­er­wise. The fact that the crypto-currency com­mu­nity is now con­fronting this sce­nario is a legit­i­mate threat to the entire experiment.

The broader mar­ket seems to agree with this con­cern, push­ing the price of bit­coin down more than 16 per­cent in a few days, from a near-term high of $655 on Tues­day, June 10 to a low of $553 on Sun­day the 15th[17]– cur­rently, the Coin­desk Price Index sits at $589. This drop fol­lows a recent upswing in price fol­low­ing a pro­longed bear mar­ket that coin­cided with the col­lapse of Mt. Gox. As of this moment, GHash con­trols roughly 35 per­cent of global hash­ing power[18] while the next largest known group, Dis­cus Fish, con­trols 16 percent.

GHash doesn’t need to con­duct a 51 per­cent attack for their hash­ing power con­cen­tra­tion to be a major issue. The sim­ple fact that the bit­coin net­work must look over its shoul­der to won­der if (or when) such an attack will arrive is enough to desta­bi­lize the system.